Adapt or Die: 5 Ways the Financial Industry Is Evolving and How Advisors Must Adapt to Survive

By Robert Sofia

"Enter This Office At Your Own Risk!" Should this sign be hanging over the door to your office?It's never been harder to be an advisor. Fail to follow the latest SEC, FINRA, or Department of Labor guidelines and your broker-dealer could fire you. Aging clients often mean diminishing accounts and fewer opportunities to invest.Younger clients expect

• Language: English
• Publisher: Robert Sofia
• Release date: Sep 8, 2014
• ISBN: 9781939758873

Book preview

PROLOGUE

CHANGE IS COMING

Are You Ready?

IF YOU OWNED a cell phone in 2005, it was probably a Motorola Razr. Motorola dominated in mobile-phone handset sales until 2007, when Apple introduced the iPhone. Less than two years after the iPhone’s debut, Motorola’s market share fell below 5 percent, and the company lost roughly $4.3 billion.

For consumers, the iPhone represented a huge leap forward. But for Motorola, a corporate icon and inventor of the cell phone, it represented bankruptcy.

Motorola’s fall from grace shouldn’t have been surprising. After all, industries evolve. Consumers are fickle. Businesses come and go. What is noteworthy, though, is that many of the iPhone’s competitors are still thriving and will likely do so for decades to come. Motorola could have maintained its position as an industry leader, but unlike Samsung, Nokia, and a handful of other companies, it made the fatal mistake of failing to innovate.

The financial industry is not exempt from these kinds of shifts. You may already know that Wall Street’s biggest firms have lost considerable market share to regional broker-dealers and registered investment advisors (RIAs). Assets started to flow out of large retail brokerages in the 1990s, but the true shift accelerated during the 2008 financial crisis—independent advisors gained favor over Wall Street firms with tarnished reputations.

And let’s not forget the old-fashioned stock jockeys of the 1980s. Where are they today? Consider how the role of the registered representative has evolved over time. Stockbrokers became financial advisors; financial advisors became wealth managers; wealth managers became fiduciaries and founded RIAs, and many are now carving out niches and opening family offices. Few people are seeking the help of stockbrokers anymore—and why would they? In this day and age, consumers have Morningstar and E*Trade on their iPhones. Technological accessibility puts everything they need to trade stocks right at their fingertips.

So, the million-dollar question is: How long until people won’t want the help of financial professionals at all?

We need to make sure we never see that day. The financial industry isn’t going anywhere, but it is changing, and we must evolve with it. New players are joining the game and old players are disappearing. The Apples of our industry are thriving, and the Motorolas are floundering.

Through years of consulting with over one thousand of the nation’s top solo advisors, RIAs, banks, broker-dealers, and insurance companies, I’ve concluded that there are five key forces—automation, consolidation, generation, compensation, and regulation—shaping the future of our industry. Companies who use these forces to their advantage will grow and thrive. Those who don’t will find themselves endangered at best, and extinct at worst.

Here is a brief overview of what you can expect to learn about in this book.

1. Automation. The wisest advisors are automating their businesses and taking advantage of new developments in information and communication technology. The higher cost of running a firm today makes automation an unquestionable necessity. You can’t get away with filling out paper forms with a fountain pen. Not if you want to stay in business. What must you do to keep up?

2. Consolidation. Economies of scale and the cohort of older advisors running one-man shops moving into retirement means that fewer, larger players will dominate the industry. The financial services field is increasingly becoming an eat-or-be-eaten space. Where are you on the food chain? What can be done to ensure your survival?

3. Generation. Our industry tends toward older advisors serving older clients. But as those clients draw down their accounts and ultimately pass away, those same advisors are failing to develop relationships with their clients’ children and grandchildren…or with younger clients in general. What are you doing to attract younger clients? How can you tap into the next generation to secure the future of your business?

4. Compensation. Fees and commissions are dropping as online platforms, a low-interest-rate environment, and disclosure rules suck much of the profitability out of our business. How can you strategically grow your firm and increase your pay while reducing your workload?

5. Regulation. The SEC, FINRA, and even the Department of Labor have advisors in their crosshairs as never before. Are you and your firm paying attention to the radically heightened scrutiny advisors face? Have you moved from a suitability standard to a fiduciary standard yet? What compliance practices must you adopt to survive?

As we will see later in this book, any one of these trends is enough to put our business on a completely new footing. Taken together, all five are shaping a new era for the financial services industry.

I don’t have a crystal ball, but I’ve spent years analyzing trends in our industry, and it’s obvious to me where things are headed. I meet a lot of people who aren’t aware of the tsunami that’s coming, which is why I wrote this book. In these chapters, I’ve laid out the actionable steps advisors must take if they don’t want to become dinosaurs. In short, this book will prepare you for the revolution that has already begun.

•••

SO WHO AM I, and why should you listen to me about the future of the financial advice business? Simply put, it’s my job to help financial advisors succeed. The company I cofounded in 2009, Platinum Advisor Strategies, was built entirely on that premise—and it has consistently delivered.

Today, Platinum is ranked 362 on the Inc. 5000 list of America’s fastest-growing companies. We are the twenty-ninth fastest-growing company for business services and the tenth fastest-growing agency in the nation. We currently have over thirteen hundred financial advisors going through our program, and many of their practices have doubled or tripled in size since beginning to work with our roadmap.

Our clients include independent advisors, RIAs, broker-dealers, and wirehouse advisors; Wall Street advisors and Kentucky advisors; twenty-year-olds just starting out and sixty-five-year-olds who are about to retire. Working with such a diverse client base gives me a unique perspective on where our industry is heading. I’m also a diligent student of the financial advice business, reading nearly every major industry journal from cover to cover for the past decade.

In recent years, I’ve observed these five key trends gradually forging an industry-wide shift. As a consultant and coach to so many financial professionals, I feel an obligation to bring this shift to light, and to share my perspective on what advisors must do to survive—and thrive.

•••

A GOOD HOCKEY player plays where the puck is. A great hockey player plays where the puck is going to be. Wayne Gretzky, acclaimed former professional hockey player and head coach, said this, though I doubt he knew how profoundly his words would apply to the world of business.

Consider the current position of your own business. Are you mostly serving aging baby boomers who are gradually drawing down their accounts and will eventually pass everything to children who have no relationship with you? Do your clients lack online access to consolidated accounts reporting? Are you operating without a formal succession plan? If you answered yes to any of these questions, you’re playing where the puck is—and it’s time to advance your game.

Just as the value of a stock is determined by its potential for future performance, so, too, is the value of your business. Are you convinced that your current business model will withstand the test of time? In fifteen or twenty years, will your company be worth more than it is now, or will it peak in the next decade and then begin a steady decline? And are you so busy planning for your clients’ retirement that you don’t have an actionable plan in place for your own?

These are only some of the questions that these five developments prompt us to ask. When you finish reading this book, it is my hope that you will have the answers, and that you will know what actions to take for future success. This insight will be particularly valuable if you’re a solo advisor, because the quality of your own retirement may be largely based on the price your practice commands when you sell it.

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